Correlation Between Transamerica Small and Transamerica Capital

Can any of the company-specific risk be diversified away by investing in both Transamerica Small and Transamerica Capital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Transamerica Small and Transamerica Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Transamerica Small Cap and Transamerica Capital Growth, you can compare the effects of market volatilities on Transamerica Small and Transamerica Capital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Transamerica Small with a short position of Transamerica Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Small and Transamerica Capital.

Diversification Opportunities for Transamerica Small and Transamerica Capital

0.02

Correlation Coefficient

Transamerica Small  Transamerica Capital

Significant diversification

The 3 months correlation between Transamerica and Transamerica is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Small Cap and Transamerica Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Capital and Transamerica Small is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Transamerica Small Cap are associated (or correlated) with Transamerica Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Capital has no effect on the direction of Transamerica Small i.e., Transamerica Small and Transamerica Capital go up and down completely randomly.

Pair Corralation between Transamerica Small and Transamerica Capital

Assuming the 90 days horizon Transamerica Small Cap is expected to under-perform the Transamerica Capital. In addition to that, Transamerica Small is 1.27 times more volatile than Transamerica Capital Growth. It trades about -0.08 of its total potential returns per unit of risk. Transamerica Capital Growth is currently generating about 0.16 per unit of volatility. If you would invest  1,739  in Transamerica Capital Growth on December 5, 2024 and sell it today you would earn a total of  669.00  from holding Transamerica Capital Growth or generate 38.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Transamerica Small Cap  vs.  Transamerica Capital Growth

Transamerica Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transamerica Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Transamerica Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transamerica Capital Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Transamerica Small and Transamerica Capital

The main advantage of trading using opposite Transamerica Small and Transamerica Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Small position performs unexpectedly, Transamerica Capital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Transamerica Capital will offset losses from the drop in Transamerica Capital's long position.

The idea behind Transamerica Small Cap and Transamerica Capital Growth pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.